Maruti Suzuki SUVs have surpassed competitors, but dominance is another matter

Does this mean Maruti Suzuki has handed implicit its crown to the competition? Far from it. India’s largest carmaker ended FY24 with its highest-ever portion income and nett profit, some for the fourth-quarter and the fiscal year. It besides led India's passenger-vehicle exports successful FY24 for the 3rd twelvemonth connected the trot.

But arsenic car enthusiasts cognize lone excessively well, a gleaming instrumentality tin sometimes beryllium hiding respective niggles nether the hood. The company’s Q4 numbers were a lawsuit successful point. Its net earlier interest, taxes, depreciation, and amortisation (Ebitda) grew 40% year-on-year to ₹4,685 crore but missed analysts’ estimates. More importantly, the Ebitda borderline of 12.3% trailed statement estimates of 12.8%. The borderline miss was led by a one-off 60-basis-points interaction related to CSR and worldly costs, coupled with reduced CNG conveyance accumulation owing to a shortage of components.

The little CNG premix (26.9% successful Q4 from 30.8% successful Q3) and higher stock of entry-level vehicles besides weighed connected the company’s mean selling terms (ASP), which dropped 1.5% sequentially to ₹6,54,672.

CNG forms a cardinal constituent of Maruti’s operational flywheel. CNG vehicles person higher selling prices and margins than Maruti’s mainstay, mini and compact vehicles (which relationship for 52.4% of its full sales). The institution commands a 70% stock of the CNG conveyance marketplace and astir 20% of its wide income travel from CNG models.  

Red-hot SUV market

While analysts are assured that the little CNG premix volition reverse this quarter, the bigger hazard to the institution is the raging inclination successful SUVs, which shows nary signs of cooling. From little than 30% successful FY18, SUVs present relationship for the biggest information of the home car marketplace astatine 50.4%. Robust request for SUVs made India the world’s third-largest passenger-vehicle marketplace successful FY24, with income crossing 40 lakh for the archetypal time.

Maruti Suzuki, which ushered successful the small-car gyration successful India, was initially caught unawares by the SUV craze. As precocious arsenic 2022 its stock successful the SUV marketplace was a paltry 9.5%, adjacent trailing South Korea’s Kia, which had entered the marketplace lone successful 2019.

However, acknowledgment to a slew of launches and its planetary concern with Toyota, Maruti overtook Mahindra to go the country’s largest SUV shaper successful the archetypal fractional of FY24. Its existent SUV marketplace stock stands astatine astir 22%, and the institution is targeting 50% successful the adjacent fewer years.

But analysts accidental this is easier said than done. 

Hyundai, Tata Motors, M&M and different carmakers are aggressively expanding their SUV lineups. At the premium end, high-tech EVs from planetary brands are luring buyers.

Maruti is nary alien to the effects of accrued competition, having seen its marketplace stock erode to 41% from a highest of 51% successful FY19. On the operational front, commodity prices are apt to summation marginally successful FY25, peculiarly alloy (10-11% of Maruti’s nett sales), aluminium (3%) and copper (1%).

Small-car income look headwinds

The institution is besides facing headwinds successful its bread-and-butter mass-market segment. First-time buyers stood astatine 40-43% successful FY24. The institution absorption said it was not seeing immoderate betterment successful this segment, and frankincense the FY25 and FY26 outlook for tiny cars seems stressed. 

And aft a 24% run-up truthful acold successful 2024, analysts are advising investors to temper their near-term expectations from Maruti Suzuki shares. The fig of ‘buy’ calls connected the banal has dropped from 38 astatine the commencement of the twelvemonth to 34, according to Bloomberg data.

That said, it would beryllium foolhardy to constitute disconnected a institution with the pedigree of Maruti Suzuki.

“We consciousness the concerns implicit the car industry’s maturation slowdown are short-term successful quality arsenic involvement rates highest portion the feel-good origin continues from beardown returns generated by antithetic plus classes," analysts astatine InCred Equities said successful a note. 

“Maruti Suzuki is amended placed successful the abbreviated word to thrust this slowdown by debottlenecking CNG conveyance proviso concatenation and gathering the agelong waiting period. The caller EV motorboat successful aboriginal CY25F should easiness exertion modulation risk," they added.